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Volume 1
Principles of Accounting,
Volume 1: Financial
Accounting
SENIOR CONTRIBUTING AUTHORS
MITCHELL FRANKLIN, LE MOYNE COLLEGE (FINANCIAL ACCOUNTING)
PATTY GRAYBEAL, UNIVERSITY OF MICHIGAN-DEARBORN (MANAGERIAL ACCOUNTING)
DIXON COOPER, OUACHITA BAPTIST UNIVERSITY
OpenStax
Rice University
6100 Main Street MS-375
Houston, Texas 77005
To learn more about OpenStax, visit https://openstax.org.
Individual print copies and bulk orders can be purchased through our website.
|
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|
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PRINT BOOK ISBN-10
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OPENSTAX
|
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PRINT BOOK ISBN-10
PRINT BOOK ISBN-13
PDF VERSION ISBN-10
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1-947172-68-9
978-1-947172-68-5
1-947172-67-0
978-1-947172-67-8
OPENSTAX
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Ann and John Doerr
Michelson 20MM Foundation
Bill & Melinda Gates Foundation
National Science Foundation
Girard Foundation
Google Inc.
The Open Society Foundations
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Ann and John Doerr
Michelson 20MM Foundation
Bill & Melinda Gates Foundation
National Science Foundation
Girard Foundation
Google Inc.
The Open Society Foundations
Jumee Yhu and David E. Park III
The William and Flora Hewlett Foundation
Brian D. Patterson USA-International Foundation
Rusty and John Jaggers
The Bill and Stephanie Sick Fund
The Calvin K. Kazanjian Economics Foundation
Robin and Sandy Stuart Foundation
Charles Koch Foundation
The Stuart Family Foundation
Leon Lowenstein Foundation, Inc.
Tammy and Guillermo Treviño
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TABLE OF CONTENTS
Preface 1
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TABLE OF CONTENTS
Preface 1
1 Role of Accounting in Society 11
1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial
Accounting
12
1.2 Identify Users of Accounting Information and How They Apply Information
1.3 Describe Typical Accounting Activities and the Role Accountants Play in Identifying,
14
Recording, and Reporting Financial Activities
18
1.4 Explain Why Accounting Is Important to Business Stakeholders
1.5 Describe the Varied Career Paths Open to Individuals with an Accounting Education
24
32
2
Introduction to Financial Statements 61
2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and
Statement of Cash Flows, and How They Interrelate
62
2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and
|
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Statement of Cash Flows, and How They Interrelate
62
2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and
Noncurrent Liabilities, Equity, Revenues, and Expenses
77
2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet
81
3 Analyzing and Recording Transactions 115
3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to
Financial Statements
116
3.2 Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing
Transactions
124
3.3 Define and Describe the Initial Steps in the Accounting Cycle
3.4 Analyze Business Transactions Using the Accounting Equation and Show the Impact of
130
Business Transactions on Financial Statements
135
3.5 Use Journal Entries to Record Transactions and Post to T-Accounts
3.6 Prepare a Trial Balance
165
140
4
The Adjustment Process 211
|
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130
Business Transactions on Financial Statements
135
3.5 Use Journal Entries to Record Transactions and Post to T-Accounts
3.6 Prepare a Trial Balance
165
140
4
The Adjustment Process 211
4.1 Explain the Concepts and Guidelines Affecting Adjusting Entries
4.2 Discuss the Adjustment Process and Illustrate Common Types of Adjusting Entries
4.3 Record and Post the Common Types of Adjusting Entries
4.4 Use the Ledger Balances to Prepare an Adjusted Trial Balance
4.5 Prepare Financial Statements Using the Adjusted Trial Balance
236
239
212
227
215
5 Completing the Accounting Cycle 285
5.1 Describe and Prepare Closing Entries for a Business
5.2 Prepare a Post-Closing Trial Balance
298
286
5.3 Apply the Results from the Adjusted Trial Balance to Compute Current Ratio and Working
Capital Balance, and Explain How These Measures Represent Liquidity
5.4 Appendix: Complete a Comprehensive Accounting Cycle for a Business
300
313
6 Merchandising Transactions 365
|
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] |
Capital Balance, and Explain How These Measures Represent Liquidity
5.4 Appendix: Complete a Comprehensive Accounting Cycle for a Business
300
313
6 Merchandising Transactions 365
6.1 Compare and Contrast Merchandising versus Service Activities and Transactions
6.2 Compare and Contrast Perpetual versus Periodic Inventory Systems
6.3 Analyze and Record Transactions for Merchandise Purchases Using the Perpetual Inventory
378
366
System 386
6.4 Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory
System 392
6.5 Discuss and Record Transactions Applying the Two Commonly Used Freight-In
Methods
400
6.6 Describe and Prepare Multi-Step and Simple Income Statements for Merchandising
Companies
404
6.7 Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the
Periodic Inventory System 408
7 Accounting Information Systems 451
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Companies
404
6.7 Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the
Periodic Inventory System 408
7 Accounting Information Systems 451
7.1 Define and Describe the Components of an Accounting Information System 452
7.2 Describe and Explain the Purpose of Special Journals and Their Importance to
Stakeholders
466
7.3 Analyze and Journalize Transactions Using Special Journals
7.4 Prepare a Subsidiary Ledger
7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and
487
476
Information Systems
494
8
Fraud, Internal Controls, and Cash 531
8.1 Analyze Fraud in the Accounting Workplace
8.2 Define and Explain Internal Controls and Their Purpose within an Organization
8.3 Describe Internal Controls within an Organization
8.4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal
532
542
535
Entries
547
|
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532
542
535
Entries
547
8.5 Discuss Management Responsibilities for Maintaining Internal Controls within an
Organization
551
8.6 Define the Purpose of a Bank Reconciliation, and Prepare a Bank Reconciliation and Its
Associated Journal Entries
552
8.7 Describe Fraud in Financial Statements and Sarbanes-Oxley Act Requirements
555
9 Accounting for Receivables 577
9.1 Explain the Revenue Recognition Principle and How It Relates to Current and Future Sales
and Purchase Transactions
578
9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement
Approaches
584
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and Purchase Transactions
578
9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement
Approaches
584
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
9.3 Determine the Efficiency of Receivables Management Using Financial Ratios
9.4 Discuss the Role of Accounting for Receivables in Earnings Management
9.5 Apply Revenue Recognition Principles to Long-Term Projects
9.6 Explain How Notes Receivable and Accounts Receivable Differ
9.7 Appendix: Comprehensive Example of Bad Debt Estimation
606
603
612
599
594
10
Inventory 647
10.1 Describe and Demonstrate the Basic Inventory Valuation Methods and Their Cost Flow
Assumptions
648
10.2 Calculate the Cost of Goods Sold and Ending Inventory Using the Periodic Method
10.3 Calculate the Cost of Goods Sold and Ending Inventory Using the Perpetual Method
10.4 Explain and Demonstrate the Impact of Inventory Valuation Errors on the Income
657
663
Statement and Balance Sheet
|
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657
663
Statement and Balance Sheet
672
10.5 Examine the Efficiency of Inventory Management Using Financial Ratios
674
11 Long-Term Assets 699
11.1 Distinguish between Tangible and Intangible Assets
11.2 Analyze and Classify Capitalized Costs versus Expenses
11.3 Explain and Apply Depreciation Methods to Allocate Capitalized Costs
709
11.4 Describe Accounting for Intangible Assets and Record Related Transactions
11.5 Describe Some Special Issues in Accounting for Long-Term Assets
700
704
723
721
12 Current Liabilities 745
12.1 Identify and Describe Current Liabilities
12.2 Analyze, Journalize, and Report Current Liabilities
12.3 Define and Apply Accounting Treatment for Contingent Liabilities
12.4 Prepare Journal Entries to Record Short-Term Notes Payable
12.5 Record Transactions Incurred in Preparing Payroll
777
755
746
773
764
13 Long-Term Liabilities 809
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777
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13 Long-Term Liabilities 809
13.1 Explain the Pricing of Long-Term Liabilities
13.2 Compute Amortization of Long-Term Liabilities Using the Effective-Interest Method
13.3 Prepare Journal Entries to Reflect the Life Cycle of Bonds
13.4 Appendix: Special Topics Related to Long-Term Liabilities
830
842
810
822
14 Corporation Accounting 859
14.1 Explain the Process of Securing Equity Financing through the Issuance of Stock
14.2 Analyze and Record Transactions for the Issuance and Repurchase of Stock
14.3 Record Transactions and the Effects on Financial Statements for Cash Dividends, Property
871
860
Dividends, Stock Dividends, and Stock Splits
879
14.4 Compare and Contrast Owners’ Equity versus Retained Earnings
890
14.5 Discuss the Applicability of Earnings per Share as a Method to Measure
Performance
897
15 Partnership Accounting 925
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Performance
897
15 Partnership Accounting 925
15.1 Describe the Advantages and Disadvantages of Organizing as a Partnership
15.2 Describe How a Partnership Is Created, Including the Associated Journal Entries
15.3 Compute and Allocate Partners’ Share of Income and Loss
15.4 Prepare Journal Entries to Record the Admission and Withdrawal of a Partner
15.5 Discuss and Record Entries for the Dissolution of a Partnership
943
935
926
932
938
16 Statement of Cash Flows 955
16.1 Explain the Purpose of the Statement of Cash Flows
16.2 Differentiate between Operating, Investing, and Financing Activities
16.3 Prepare the Statement of Cash Flows Using the Indirect Method
16.4 Prepare the Completed Statement of Cash Flows Using the Indirect Method
16.5 Use Information from the Statement of Cash Flows to Prepare Ratios to Assess Liquidity
956
957
971
959
and Solvency
974
16.6 Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method
979
A
|
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956
957
971
959
and Solvency
974
16.6 Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method
979
A
Financial Statement Analysis 1009
B Time Value of Money 1021
C
Suggested Resources 1025
Index 1041
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Preface
Preface
1
Welcome to Principles of Accounting, an OpenStax resource. This textbook was written to increase student
access to high-quality learning materials, maintaining highest standards of academic rigor at little to no cost.
About OpenStax
OpenStax is a nonprofit based at Rice University, and it’s our mission to improve student access to education.
Our first openly licensed college textbook was published in 2012, and our library has since scaled to over 30
books for college and AP® courses used by hundreds of thousands of students. OpenStax Tutor, our low-cost
|
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that are most relevant to the needs of your course. Feel free to remix the content by assigning your students
certain chapters and sections in your syllabus, in the order that you prefer. You can even provide a direct link
in your syllabus to the sections in the web view of your book.
Instructors also have the option of creating a customized version of their OpenStax book. The custom version
can be made available to students in low-cost print or digital form through their campus bookstore. Visit the
Instructor Resources section of your book page on openstax.org for more information.
Art attribution in Principles of Accounting
In Principles of Accounting, most art contains attribution to its title, creator or rights holder, host platform, and
license within the caption. Because the art is openly licensed, anyone may reuse the art as long as they provide
the same attribution to its original source.
|
{"title": "Principles of Accounting, Volume 1: Financial Accounting", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "producer": "Prince 11 (www.princexml.com)", "upload_timestamp": "2026-02-07T07:23:08.167529", "creationdate": "2019-04-24T10:32:54-05:00", "file_size_mb": 156.7, "creator": "DocBook XSL Stylesheets V1.79.1", "uploaded_via": "batch_uploader", "moddate": "2020-08-05T15:26:11-05:00", "file_type": ".pdf", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "batch_upload": true, "total_pages": 1055, "file_name": "FinancialAccounting-OP.pdf"}
|
Vectorstore Dataset: Accounting
Overview
This dataset contains pre-computed vector embeddings for the accounting domain, ready for use in Retrieval-Augmented Generation (RAG) applications, semantic search, and knowledge base systems. The embeddings are generated from high-quality source documents using state-of-the-art sentence transformers, making it easy to build production-ready RAG applications without the computational overhead of embedding generation.
What This Knowledge Base Covers
This knowledge base covers core accounting concepts, principles, and practices. It includes topics such as financial statements, bookkeeping, GAAP/IFRS standards, auditing, tax fundamentals, and corporate finance. Use it to answer questions about accounting terminology, reporting standards, financial analysis, and practical accounting workflows.
Key Features
- ✅ Pre-computed embeddings: Ready-to-use vector embeddings, saving computation time
- ✅ Production-ready: Optimized for real-world RAG applications
- ✅ Comprehensive metadata: Includes source file information, page numbers, and document hashes
- ✅ LangChain compatible: Works seamlessly with LangChain and ChromaDB
- ✅ Search-optimized: Designed for fast semantic similarity search
What's Included
This dataset contains 4,838 text chunks from 2 source documents, each pre-embedded using the sentence-transformers/all-MiniLM-L6-v2 model. Each chunk includes:
- Text content: The original document text
- Embedding vector: 384-dimensional float32 vector
- Rich metadata: Source file, page numbers, document hash, and more
Dataset Details
Dataset Summary
- Domain:
accounting - Total Chunks: 4,838
- Total Documents: 2
- Database Size: 52.78 MB (8 files)
- Embedding Model:
sentence-transformers/all-MiniLM-L6-v2 - Chunk Size: 1000
- Chunk Overlap: 200
Dataset Structure
The dataset contains the following columns:
- id: Unique identifier for each chunk
- embedding: Vector embedding (numpy array, dtype=float32)
- document: Original text content of the chunk
- metadata: JSON string containing metadata (file_name, file_hash, page_number, etc.)
Embedding Model
This dataset uses embeddings from: sentence-transformers/all-MiniLM-L6-v2
Usage
Loading the Dataset
from datasets import load_dataset
# Load the dataset
dataset = load_dataset("meetara-lab/vectorstore-accounting")
# Access the data
print(dataset["train"][0])
# Output:
# {
# 'id': '...',
# 'embedding': array([...], dtype=float32),
# 'document': '...',
# 'metadata': '{"file_name": "...", "page": 1, ...}'
# }
Loading Back into ChromaDB
from langchain_chroma import Chroma
from langchain_huggingface import HuggingFaceEmbeddings
from datasets import load_dataset
import json
# Load dataset
dataset = load_dataset("meetara-lab/vectorstore-accounting")["train"]
# Initialize ChromaDB
embeddings = HuggingFaceEmbeddings(model_name="sentence-transformers/all-MiniLM-L6-v2")
vectorstore = Chroma(
persist_directory="./chroma_accounting",
embedding_function=embeddings
)
# Add documents to ChromaDB
documents = []
metadatas = []
ids = []
embeddings_list = []
for item in dataset:
ids.append(item["id"])
embeddings_list.append(item["embedding"].tolist())
documents.append(item["document"])
metadatas.append(json.loads(item["metadata"]))
# Note: You'll need to use ChromaDB's Python client directly for custom embeddings
import chromadb
client = chromadb.PersistentClient(path="./chroma_accounting")
collection = client.create_collection(name="accounting")
collection.add(
ids=ids,
embeddings=embeddings_list,
documents=documents,
metadatas=metadatas
)
Using with LangChain
from langchain_chroma import Chroma
from langchain_huggingface import HuggingFaceEmbeddings
# Initialize retriever
embeddings = HuggingFaceEmbeddings(model_name="sentence-transformers/all-MiniLM-L6-v2")
vectorstore = Chroma(
persist_directory="./chroma_accounting",
embedding_function=embeddings
)
# Load from HF Hub first (see above), then use with LangChain
retriever = vectorstore.as_retriever()
results = retriever.invoke("your query here")
Domain-Specific Usage Examples
This vectorstore is optimized for Accounting domain queries. Here are practical examples:
Example Queries
from langchain_chroma import Chroma
from langchain_huggingface import HuggingFaceEmbeddings
# Load vectorstore (see "Loading Back into ChromaDB" above)
embeddings = HuggingFaceEmbeddings(model_name="sentence-transformers/all-MiniLM-L6-v2")
vectorstore = Chroma(
persist_directory="./chroma_accounting",
embedding_function=embeddings
)
retriever = vectorstore.as_retriever(search_kwargs={"k": 3})
# Example queries for accounting domain:
example_queries = [
"What are the main components of a balance sheet?",
"How to record journal entries for accruals?",
"Explain GAAP vs IFRS accounting standards",
"What is the double-entry bookkeeping system?",
"How to prepare a cash flow statement?"
]
# Run a query
query = "What are the main components of a balance sheet?"
results = retriever.invoke(query)
# Display results
for i, doc in enumerate(results, 1):
print(f"\nResult {i}:")
print(f" Source: {doc.metadata.get('file_name', 'Unknown')}")
print(f" Page: {doc.metadata.get('page', 'N/A')}")
print(f" Content: {doc.page_content[:200]}...")
Common Use Cases
This dataset is useful for:
- Accounting concept lookup and explanation
- Financial reporting and standards reference
- Bookkeeping and journal entry guidance
- Audit and compliance information
- Corporate finance and analysis
Real-World Example
# Complete example: Query and use results
from langchain_chroma import Chroma
from langchain_huggingface import HuggingFaceEmbeddings
# 1. Initialize (after loading from HF Hub)
embeddings = HuggingFaceEmbeddings(model_name="sentence-transformers/all-MiniLM-L6-v2")
vectorstore = Chroma(
persist_directory="./chroma_accounting",
embedding_function=embeddings
)
# 2. Create retriever with relevance filtering
retriever = vectorstore.as_retriever(
search_type="similarity",
search_kwargs={
"k": 5, # Get top 5 most relevant results
"score_threshold": 0.7 # Minimum similarity score
}
)
# 3. Query the vectorstore
query = "How to record journal entries for accruals?"
docs = retriever.invoke(query)
# 4. Process results
for doc in docs:
metadata = doc.metadata
print(f"📄 File: {metadata.get('file_name', 'Unknown')}")
print(f"📃 Page: {metadata.get('page', 'N/A')}")
print(f"📝 Content: {doc.page_content[:300]}...\n")
Dataset Statistics
Content Statistics
- Total Chunks: 4,838
- Total Documents: 2
- Average Chunks per Document: 2419.0
- Database Size: 52.78 MB (8 files)
Technical Specifications
- Embedding Model:
sentence-transformers/all-MiniLM-L6-v2(384 dimensions) - Chunk Size: 1000 characters
- Chunk Overlap: 200 characters
- Format: Parquet/Arrow (optimized for fast loading)
Performance Considerations
Loading Time
- Full dataset loads in ~5-15 seconds on average hardware
- Memory usage: ~7.1 MB for embeddings alone
- Recommended RAM: 2GB+ for full dataset operations
Search Performance
- Typical query time: <100ms for similarity search
- Optimized for retrieval of top-k results (k=5-10)
- Works best with vector databases like ChromaDB, Pinecone, or Weaviate
Citation
If you use this dataset, please cite:
@dataset{meetara_vectorstore_accounting,
title={meeTARA Vectorstore: Accounting},
author={meeTARA Lab},
year={2024},
url={https://huggingface.co/datasets/meetara-lab/vectorstore-accounting}
}
Limitations and Considerations
- Language: This dataset is monolingual (English only)
- Domain specificity: Optimized for accounting domain queries
- Embedding model: Uses
sentence-transformers/all-MiniLM-L6-v2- ensure compatibility if switching models - Update frequency: Dataset reflects state at time of publication; source documents may have been updated
Alternatives and Related Datasets
Looking for other domains? Check out the complete meeTARA Vectorstore collection:
Healthcare Domain
- 🏥
meetara-lab/vectorstore-general_health- General Health (35,556 chunks) - 💊
meetara-lab/vectorstore-healthcare- Healthcare (Available) - 🧠
meetara-lab/vectorstore-mental_health- Mental Health (407 chunks) - 💊
meetara-lab/vectorstore-nutrition- Nutrition (1,165 chunks) - 💊
meetara-lab/vectorstore-senior_health- Senior Health (410 chunks) - 👩
meetara-lab/vectorstore-women_health- Women Health (318 chunks)
Education Domain
- 📚
meetara-lab/vectorstore-academic_tutoring- Academic Tutoring (64,845 chunks) - 📚
meetara-lab/vectorstore-education- Education (Available)
Other Domains
- 📁
meetara-lab/vectorstore-ai_ml- Ai Ml (131 chunks) - 📁
meetara-lab/vectorstore-bipolar_disorder- Bipolar Disorder (65 chunks) - 📁
meetara-lab/vectorstore-chronic_conditions- Chronic Conditions (1,882 chunks) - 📁
meetara-lab/vectorstore-economics- Economics (2,195 chunks) - 📁
meetara-lab/vectorstore-emergency_care- Emergency Care (52 chunks) - 📁
meetara-lab/vectorstore-medication_management- Medication Management (161 chunks) - 📁
meetara-lab/vectorstore-parenting- Parenting (460 chunks) - 📁
meetara-lab/vectorstore-preventive_care- Preventive Care (253 chunks) - 📁
meetara-lab/vectorstore-programming- Programming (171 chunks) - 📁
meetara-lab/vectorstore-publish- Publish (Available) - 📁
meetara-lab/vectorstore-software_development- Software Development (82 chunks) - 📁
meetara-lab/vectorstore-space_technology- Space Technology (15 chunks) - 📁
meetara-lab/vectorstore-sports_recreation- Sports Recreation (Available) - 📁
meetara-lab/vectorstore-stress_management- Stress Management (26 chunks) - 📁
meetara-lab/vectorstore-tech_support- Tech Support (2,920 chunks)
🔗 View all meeTARA datasets: https://huggingface.co/meetara-lab
💡 Tip: Combine multiple domain datasets for comprehensive multi-domain RAG applications!
Maintenance and Updates
This dataset is maintained by the meeTARA Lab team.
- Last Updated: 2026-02-07
- Version: 1.0
- Update Policy: Datasets are updated periodically as source documents are added or improved
- Notifications: Follow the repository to receive updates when new versions are published
For updates, bug reports, or feature requests, please visit our GitHub repository.
License
This dataset is released under the Apache 2.0 License. This means you are free to:
- Use the dataset commercially and non-commercially
- Modify and create derivative works
- Distribute the dataset and modifications
Please see the full license text for complete terms.
Citation
If you use this dataset in your research or applications, please cite it as:
@dataset{meetara_vectorstore_accounting,
title={meeTARA Vectorstore: Accounting},
author={meeTARA Lab},
year={2024},
url={https://huggingface.co/datasets/meetara-lab/vectorstore-accounting},
license={apache-2.0},
task={feature-extraction, text-retrieval, rag}
}
Contact and Support
- GitHub: meetara-lab/meetara-core
- Hugging Face Profile: @meetara-lab
- Issues: Report bugs or request features on GitHub Issues
- Documentation: Visit our repository for detailed documentation
- Dataset Requests: Want a new domain? Open an issue to request it!
Contributing
We welcome contributions! If you'd like to:
- 🐛 Report bugs
- 💡 Suggest new domains
- 📝 Improve documentation
- 🔧 Contribute code
Please visit our GitHub repository.
Made with ❤️ by the meeTARA Lab team
Part of the meeTARA Vectorstore Collection - Empowering RAG applications with high-quality domain-specific embeddings.
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